ORDER
Jyoti Balasundaram, Member (J)
1. In this case, a duty demand of Rs. 2,43,702.21 P. has been confirmed on a quantity of 20,000 litres of liquid electrolytes produced in the appellants factory by mixing of duty paid Potassium Hydroxide (Solid KOH) with DI water to obtain solution of required specific gravity (used for formulation processes and testing of cells used in stationary batteries) and a quantity of 61,379.90 litres of solid KOH and LiOH (Lithium Hydroxide) despatched along with the stationary batteries manufactured by the appellants to their customers, on the ground that liquid electrolyte is an excisable commodity attracting 15% ad valorem of Special Excise duty under sub-heading 38.23 of the Schedule to the CETA, 1985, and not entitled to the benefit of exemption under Notification No. 217/86-C.E., dated 2-3-1986 since the stationary batteries for which the liquid electrolyte was used were exempt from duty under Notification No. 68/86-C.E., dated 10-2-1986. The Adjudicating authority has also imposed a penalty of Rs. 60,000/- upon the appellants.
2. We have heard Shri R. Nambirajan learned Advocate who contends that the mixing of potassium hydroxide with water in the appellants factory and the mixing of potassium hydroxide with lithium hydroxide with water in the customers premises, does not result in manufacture of a new distinct excisable commodity different from the solid form of hydroxide, since potassium hydroxide and lithium hydroxide in solid form are electrolytes and even after mixing with water, they continue to remain electrolytes. He also contends that even if it is held that mixing of solid KOH and LiOH with water in the premises of various customers of the appellants, amounts to manufacture, even than the Collector of Central Excise, Chandigarh who has passed the impugned order, would have no jurisdiction to adjudicate the demand of 61,379.90 litres since the different customers fall under the jurisdiction of different Collectorates.
3. He cites the Ministry of Finance, Department of Revenue letter dated 30-1-1998 clarifying that the dissolving of duty paid Magnesium chloride in powder form in water to obtain a solution is not a manufacturing activity, since no new commodity comes into existence and therefore, no duty would be leviable on such solution in support of his contention that the mixing of solid KOH with water and solid KOH and solid LiOH with water does not amount to manufacture.
He also submits that the liquid electrolyte is not marketable in liquid form and that the department has failed to discharge the burden of establishing the marketability of the disputed products. Lastly, he submits that the demand is barred by limitation – the show cause notice dated 3-2-1993 covering the period from 14-1-1988 to 7-8-1992 is beyond the period of six months from the relevant date and the extended period of limitation is not applicable since the appellants were under a bona fide belief, based upon the 1988 Circular cited above that the mixing of electrolyte in solid form with water does not amount to manufacture of a new excisable commodity. He therefore, prays for setting aside the duty demand and the penalty.
4. The learned DR draws our attention to the finding in the impugned order that both the General Manager and the Senior Works Manager of the appellants had admitted that the disputed product was manufactured by mixing DI water with solid KOH and LiOH. He submits that in view of assessee’s own admission, they cannot deny that the product is a result of manufacture and that duty is leviable thereon. He contends that non-disclosure by the appellants of the fact of manufacture of liquid electrolyte has given rise to the applicability of the extended period of limitation. In these circumstances, he urges that the impugned order may be upheld and the appeal rejected.
5. We have considered the rival submissions. The appellants who are manufacturers inter alia of Nickel Cadium batteries/stationary batteries (electric accumulators) and portable batteries falling under Chapter 85 were clearing chargeable batteries on payment of duty and clearing stationary batteries free of duty by availing exemption under Notification 68/86-C.E. They have contended that Potassium Hydroxide which is admittedly classifiable under CET sub-heading 28.15 does not become a different product, on being dissolved in water, so as to take it out of the purview of the above heading; that the adding of Lithium Hydroxide along with potassium hydroxide and water would not give rise to a different excisable commodity; that the statements of the General Manager and Senior Works Manager cannot be interpreted as an admission of manufacture, which is an issue to be independently decided by the adjudicating authority.
6. Hawley’s Condensed Chemical Dictionary 11th Edition shows that Potassium Hydroxide and Lithium Hydroxide are electrolytes for storage battery purposes (pages 956 and 709). The contention of the appellants that mixing with water is only for the purpose of dissolving of the solid flakes of KOH and LiOH has not been rebutted by the Revenue. The Collector’s finding on excisability contained in para 18 of the impugned order, is based entirely upon the statements of General Manager and the Senior Works Manager of the appellants and there is no independent reasoning on how the mixing results in a distinct commercial commodity having a different name, character and use from the solid form so as to satisfy the test of manufacture which is one of the important criteria for determining excisability. The second criterion namely that of marketability has also not been satisfied, since the Revenue has not discharged the burden of establishing marketability and the finding on this aspect, in para 19 of the impugned order is solely based upon the statement of the Senior Works Manager that the cost of the impugned product has been included in the value of stationary batteries from which the Collector has inferred that the impugned product (electrolyte) is marketable and in fact marketed.
7.1 Let us now discuss the case laws cited before us. In the case of Coromandal Prodorite Pvt. Ltd. v. Govt. of India and Ors. reported in [1985 (20) E.L.T. 257 (Madras)], the Hon’ble Madras High Court has held that mere change in form from solid synthetic resin in solid form mixed with alcohol does not amount to manufacture since the end product is not different in nature, character and use from the solid synthetic resin. The same is the view held by the Hon’ble Madhya Pradesh High Court as seen from the case of Tata Export Ltd. v. Union of India [1985 (22) E.L.T. 732 (M.P.)] wherein it has been held that mere change in design form i.e. from powder pigment to liquid pigment slurry by mixing with water, does not amount to manufacture of a new and different commodity and that pigment slurry is only pigment powder in wet form.
7.2 In the case of Collector of Central Excise v. Densons Engineers [1991 (52) E.L.T. 296], the Tribunal has held that mixing of duty paid epoxy resin with fillers to make the resin more readily usable does not amount to manufacture since no new commercial product emerged in process. Applying the ratio of the above decisions which were cited by the learned Counsel for the appellants, we hold that the mixing of solid KOH with water and solid KOH with solid LiOH and water does not amount to manufacture since no distinct excisable commodity different from the solid form, comes into existence as a result of the mixture. We also note that the Senior Works Manager of the appellants has stated that solid KOH and solid LiOH are electrolytes in solid form and this submission has not been controverted by the Revenue.
8. In the light of the above discussion, we hold that the liquid electrolytes is not excisable; accordingly we set aside the impugned order confirming duty and imposing penalty and allow the appeal. Since the appeal is allowed on merits, we do not consider it necessary to deal with other arguments raised by the appellants.