Commissioner of Central Excise & ST,  Ahmedabad VERSUS German Chemicals

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

WEST ZONAL BENCH : AHMEDABAD

REGIONAL BENCH – COURT NO. 3

CROSS Application No.: E/CROSS/10467/2013 EXCISE Appeal No. 10021 of 2013-DB

[Arising out of Order-in-Original/Appeal No 17-COMMR-AKG-AHD-II-2012 dated 26.09.2012 passed by Commissioner of Central Excise-AHMEDABAD-II]

 

Commissioner of Central Excise & ST, Ahmedabad

VERSUS

German Chemicals 

 

AND

 

EXCISE Appeal No. 13839 of 2013-DB

[Arising out of Order-in-Original/Appeal No 178-2013-AHD-II-CE-AK-COMMR-A–AHD dated 24.09.2013 passed by Commissioner of Central Excise-AHMEDABAD-II]

German Chemicals …. Appellant

Custom House, First Floor, Old High Court Road, Navrangpura, Ahmedabad, Gujarat-380009

VERSUS

Commissioner of Central Excise & ST, Ahmedabad Respondent

139, Phase-ii, GIDC, Naroda, AHMEDABAD, GUJARAT

APPEARANCE :

Shri Vijay G Iyengar, Assistant Commissioner (AR) for the Appellant-Revenue Shri P.P. Jadeja, Consultant for the Respondent

CORAM: HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)

DATE OF HEARING : 22.03.2023 DATE OF DECISION: 20.04.2023

FINAL ORDER NO. A/10932 – 10933 / 2023 RAMESH NAIR :

The brief facts of the case are that the respondent are engaged in the process of SO Dyes classifiable under Chapter 32 of Central Excise Tariff Act, 1985 for which they are registered with jurisdictional Central Excise authorities.  On specific intelligence officers of Central Excise (Preventive)

 

 

department Ahmedabad-ii investigated the case and noticed that the respondent are engaged in the process of trading activities of retail packing in pouches and drums under various brands since 1981. After detailed investigation and recording statements of respondent’s representative, show cause notice dated 3/9.4.2012 was issued wherein it was alleged that the respondent activity of conversion of SO dyes from unformulated/ unstandarised amount to manufacture and accordingly the processed goods are liable to payment of excise duty under Chapter 320412.11 to 320412.99 of Central Excise Tariff Act, 1985. The Adjudicating Authority after giving detailed finding dropped the proceeding initiated in show cause notice dated 03/09.04.2012. Therefore, the present appeal is filed by the Revenue. On the same issue involving different period, the assessee also filed appeal.

 

 

2. Shri Vijay G Iyengar, learned Assistant Commissioner (AR) appearing on behalf of the Revenue reiterates the grounds of appeal.He submits that respondent have purchased the unformulated/unstandardized/unprepared dyes and converting the same in formulated/ standardized/ prepared dyes by diluting the strength of the dyes for making them ready to use as contemplated in Note 8 to Chapter 32 therefore, the process of such conversion amounts to manufacture hence liable for duty. He placed reliance on the judgment of this Tribunal in the case of Collector of Central Excise, Bombay vs.. French Dyes & Chemical (P) Limited – 1997 (90) ELT
3. He submits that in view of the Note-8 and judgment cited above, the Commissioner’s findings that condition stipulated in Note-8 to Chapter 32 hasnot been satisfied, is not correct and legal therefore, the impugned order needs to be set-aside and the Revenue’s appeal is to be allowed.

 

 

2. On the other hand, Shri PP Jadeja, learned Consultant appearing on behalf of the respondent submits that the assessee is engaged only in the activity of diluting the prepared SO dyes by mixing water, starch, salt etc. The original chemical properties of the product does not get altered and there is no change in the chemical composition of the product.He submits that dyes purchased by the respondent is formulated/standardized/ prepared only. The purpose of use water, starch, salt etc. is only for diluting by mixing. Even as per the test report, except for dilution of strength of the bought out dyes, there is no change of chemical composition therefore, the product remains the same i.e. formulated/ standardized or prepared form of dyes of Chapter 3204 which are ready to use. Accordingly the learned Commissioner has rightly dropped the proceedings. In support, he placed reliance on the following judgments:-
   • 2012(276) L.T. 162 (S.C.)-CCE vs. Osnar Chemical Pvt. Ltd.

 

• 2012(276) L.T. 153 (S.C.)- Flex Engineering Ltd vs. CCE, U.P..

 

• 2011(273) L.T. 10 (S.C.) – Grasim Industries Ltd. vs. UOI

 

• 2011(270) L.T. 3 (S.C.)-CCE Vs. Gurukripa Resins Pvt. Ltd.
• 2010(256) L.T. 481 (S.C.)-CCE Vs. Tarpaulin International

 

• 2010(253) L.T. 513 (S.C.)- CCE Vs. Tikitar Industries 2009

 

(238) (g) E.L.T. 385 (S.C.)-CCE Vs. Aero Pack Products

• 2007(214) L.T. 491 (S.C.)-Commr Income Tax vs. Tara Agencies
• 2008(226) L.T. 323 (S.C.)-CCE vs. BOC (I) Ltd.

 

• 2007(210) L.T. 332 (S.C.) – Sree Ramakrishna Soapnut Works

 

• 2007(210) L.T. 171 (S.C.)- Crane Betel Nut Powder Works

 

• 2006(203) L.T. 3 (S.C.) – CCE vs. Indian Aluminium Co. Ltd.

 

• 2006(193) L.T. 129 (S.C.)- CCE vs. Pipes Resplendents Ltd.

 

 

• 2006(196) L.T. 400 (S.C.) -Hindustan Poles Corporation vs.

 

CCE

• 2005(188) L.T. 467 (S.C.)-CCE vs. Johnson & Johnson Ltd.

 

• 2006(202) Elt-213 (S.C.)- CCE  Amar Bitumen & Allied Products Pvt. Ltd.

 

• 2006(198) L.T. 161 (S.C.) – CCE vs. Bell Granito Ceramica Ltd.

 

• 2005(188) L.T. 241 (S.C.)- CCE vs. Aldec Corporation

 

• 2004(165) L.T. 129 (S.C.)- Metlex (1) Pvt. Ltd. vs. CCE

 

• 2003(158) L.T. 3 (S.C.)-UOI vs. Ahmedabad Electricity Co. Ltd.

 

• 2003(157) L.T. 393 (S.C.) -Aman Marble Industries Pvt. Ltd.

 

• 2003(154) L.T. 343 (S.C.)-CCE vs. Tata Iron And Steel Co. Ltd.

 

• 2003(153) L.T. 491 (S.C.)- Markfed Vanaspati & Allied Indus.
• 1995(77) L.T. 248 (S.C.)-CCE vs. Steel Strips Ltd.

 

• 1994(74) L.T. 492 (S.C.)-UOI vs. Parle Products Pvt. Ltd.

 

• 1995(77) L.T. 49 (S.C.) – CCE vs. S.D. Fine Chemicals Pvt. Ltd. (aa) 1989 (40) E.L.T. 287 (S.C.) CCE vs. Jayant Oil Mills Pvt. Ltd.

 

3. We have carefully considered the submissions made by both the sides and perused the record.The issue to be considered in the present case is whether the 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 amounts to manufacture within the meaning of Section 2(f) of Central Excise Act, 1944 read with Note-8 to Chapter 32 of Central Excise Tariff Act, 1985. We find 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   On

 

 

going through the test results, we find 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. Further in the present case, since except the dilution and reduction in the strength of dye content, the character of the dye content remain the same. This clearly shows that dye purchased by the respondent is indeed in the form of formulated/standardized or prepared form of dyes. By any process of such formulated/ standardized or prepared dyes, the character of formulated/standardized / prepared form remain same and the activity cannot become the manufacture by resorting to Note- 8 of Chapter 32 of Central Excise Tariff Act, 1985.

 

 

4. We find that department has heavily relied on Chapter Note 8 of Chapter 32 to claim that the respondent’s activity amounts to manufacture but as stated above since the purchased dyes are in the form of formulated/standardized/prepared any activity carried out on the same form shall not amount to manufacture in terms of Chapter Note-8.We find that 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. To arrive at the conclusion, the Adjudicating Authority has relied upon various decisions which support the case of the respondent. In the case of Commissioner of Central Excise vs. Fresh Laboratories – 2008 (231) ELT 161 (Tri. Ahmd.) a similar issue was considered by this Tribunal wherein the following order was passed:-

“Both the appeals, one filed by Revenue and one filed by assessee, are being disposed, off by a common order as the issue involved is identical. Whereas one Commissioner (Appeals) vide his impugned order-in-appeal has held that process of dissolving synthetic organic dye in water does not amount to manufacture, the other Commissioner (Appeals) has held that such activity amounts to manufacture. As such, there are two different orders by the Commissioner (Appeals), holding differently in respect of same issue.

2. The appellants are engaged in selling of Liquid Blue which is obtained by dissolving Iragon Bright Violet Powder, which is classifiable under Chapter 3204.29, in the tap water and bottling the same and selling as Liquid Blue. The appellants contention isthat the said activity does not amount to manufacture, as held by the majority decision of the Tribunal in the case of Jyoti Laboratories  Collector of C. Ex., Cochin [1994 (72)

E.L.T. 669 (Tribunal)]. On the other hand, the Commissioner (Appeals) in one of his order, has relied upon another decision of the Tribunal in case of C.M.C. (India) v. Collector of C. Ex., Ahmedabad [1995 (76) E.L.T. 94 (Tribunal)], laying down that ultramarine blue is properly classifiable under Chapter Heading 3206.90 and not under 3212.90.

3. After hearing both sides, we find that the issue is no more res integra and stand decidedby the Tribunal in case of Jyoti Laboratories referred  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.

4. On the other hand, we find that in Tribunal’s decision in case of M.C. (India), no dispute as regards “manufacture” was involved and only dispute relates to classification of product. As such, it cannot be said that Tribunal’s decision in case of C.M.C. (India)has decided the disputed issue of manufacture.
5. In absence of the same and by following Tribunal’s decision in case of Jyoti Laboratories, we allow the appeals filed by assessee and rejects the appeals filed by the ”

Similar issue was also considered by Mumbai Bench of this Tribunal in the case of Nirvip Dyes & Chemicals Pvt. Limited vs. CCE, Mumbai – 2007 (208) ELT 147 (Tri. Mumbai) wherein the following order was passed:-

“7.  We have considered the submissions. We find that it is a settled position of law and through a series of decisions of CEGAT and High Court’s and the clarifications issued by the Board that conversion of vat powder into vat paste by adding glycerine, dispersing agent, water etc. does not amount to manufacture, if the vat powder is standardized/formulated or prepared dye. Chapter Note 7 of Chapter 32 also lays down that it is only conversion of unformulated/unstandardised or unprepared forms of dye into formulated/standardized or prepared form of dyes used for dying which will amount to manufacture and not otherwise. No evidence has been brought out by Revenue to establish that vat powder purchased by the appellants was unformulaled/unstandarsied or unprepared. On the contrary, invoices clearly indicate that they have been classified under Chapter 3204.29 which relates to standardized/formulated dyes only. It is also not denied by the Revenue that vat powder (dye) of different colours by themselves were prepared and formulated dye. They were by themselves standardized dye. Mixing of two standardized/formulated or prepared dye will therefore not amount to manufacture as has also been clarified by Department vide Trade Notice No. 48/86, dated 14-7-1986 issued by Bombay I Collectorate. Even otherwise, a mere change in the shade of standardized dye into another shade of standardized dye cannot be said to bring into existence an entirely new product as standardized dye will still remain a standardized dye only and the classification is not based on colours/shades. In view of the same, we hold that the process undertaken by Nirvip in converting vat powder into vat paste by addition of glycerin etc. does not amount to manufacture and accordingly no duty is payable. Once the allegation of non- payment of duty does not survive, question of imposing any penalty on either of the appellants does not arise.

8. In view of the above, we set aside the impugned order of the Commissioner and allow the appeals.”

 

 

In the case of Phoenix Mills Limited vs. UOI – 2004 (168) ELT 310 (Bom.) the Hon’ble Bombay High Court also considered the identical issue wherein the Hon’ble High Court has taken following view:-

 

 

“16.  Having considered the rival submissions at length,  the controversy lies in a very narrow compass which can be adjudicated upon the text of the show cause notices itself. The show cause notice dated 2nd November, 1992 incorporated at Exh. ’E‘ issued by respondent No. 3 specifically, states, “for the purposes of printing of fabric the petitioners require “printing paste”, and the assessee bring duty paid colour from market and mix it up with other material such as chemicals and kerosene. The mixing giving rise to the substance known as “printing paste” is classifiable under Chapter sub- heading 3204.29 of the Tariff Act”.

The second show cause notice dated 4th February, 1993 also incorporates same averments. When the show cause notices were issued the Order No. 2/93, dated 21st April, 1993 issued by the Board wad not in the field. Therefore, the “printing paste” prepared from formulated, standardised and prepared dyes by simple mixing with other materials bringing into existence a product known as “printing paste” was treated as ‘manufacture’ by the respondents for all the time till the clarification issued by the Board could see the light of the day. The clarification issued by the Board that the printing paste prepared from formulated, standardised and prepared dyes by simple mixing with other materials shall not amount to “manufacture”, as such, not classifiable under Chapter sub-heading 3204.29 of the Tariff Act has taken out the wind of the show cause notices issued by the Revenue to the petitioners. As a matter of fact, the burden to prove that the printing paste used by the petitioners was not manufactured from the formulated, standardised or prepared dyes by simple mixing with other material was on the Revenue, especially, when the show cause notices issued were pregnant with the admission on the part of the Revenue as indicated in the opening part of this para. The Revenue having chosen to issue show cause notices, burden of proof was on the Revenue. Mr. Rana is not right in contending that the burden of proof was on the petitioners. The burden always lies on the person who asserts that the particular goods are excisable. It lies at first on the party who would be unsuccessful if no evidence at all was given on either side. There is essential distinction between burden of proof and onus of proof. The burden of proof lies upon the person who has to prove a fact and it never shifts, but the onus of proof shifts. Onus means the duty of adducing evidence. Assuming that onus, has shifted on the petitioner, then, the evidence produced by the petitioners has substantially established the link between the material supplied and used by the petitioners.

17. The concept of marketability to which the respondent No. 2 had given go-bye cannot be said to be legal in view of the law laid down by the Apex Court in the case of Bhor Industries Ltd. (supra) and reiterated in the case of Ambalal Sarabhai Enterprises (supra); wherein the Apex Court ruled that marketability is an essential ingredient in order to make the goods dutiable under the Schedule to the Tariff Act. Thus, taking overall view of the matter the impugned order cannot stand to the scrutiny of law and the same is liable to be quashed and set aside. The impugned order dated 31st March, 1994 is thus quashed and set aside.

In the result, petition is allowed. Rule is made absolute in terms of this order with no order as to costs.”

5. In view of the above judgments and also the judgments relied upon by the learned Adjudicating Authority, the ratio of all the said judgments are directly applicable in the facts and legal point in the present case. As per our above discussion and findings, we do not find any infirmity in the impugned  order  passed  by  learned  Commissioner  while  dropping  the

 

 

proceedings of the show cause notice. Therefore, we uphold the impugned order and dismiss the appeal filed by Revenue. Cross objection also stands disposed of.

 

6. As regards the assessee’s appeal, we find that it is for the different period but the entire issue and facts involved are the same therefore following the findings in above Revenue’s appeal, the Excise Appeal No. 13839 of 2013 filed by the assessee is allowed.

(Pronounced in the open court on 20.04.2023)

 

 

(Ramesh Nair) Member (Judicial)

 

 

(C L Mahar) Member (Technical)

KL