ORDER
Jyoti Balasundaram, Member (J)
1. This matter has come up before me as a result of Hon’ble Supreme Court’s directions dated 30-3-1995 in Civil Appeal No. 2532 (NM) of 1992 reported in [1995 (77) E.L.T. 49 (SC)].
2. The appellants, who are a Central Excise licensee, filed a classification list under Rule 173B of the Central Excise Rules, 1944 effective from 1-4-1983. In this classification list, they declared as items manufactured by them, laboratory and fine chemicals (list of items as per Annexure A) under Tariff Item 68 of the erstwhile First Schedule to the Central Excises and Salt Act, 1944. The present case does not relate to these manufactured items. The appellants also undertake repacking of bought out chemicals from bulk back to small retail packs. The appellants call this activity of repacking as direct pack. There is also no dispute in the present case as far as this activity of the appellants is concerned. Apart from the above, the appellants also undertake purification of bought out chemicals by way of distillation/recrystallisation. This was declared in the classification list as ‘chemicals purchased from market further repacked/purified (Annexure C)’. Annexure C to the classification list described the chemicals purchased from the market and further repacked/purified. The entire dispute in the present case relates to this activity of purification of chemicals undertaken by the appellants.
3. The dispute before me is confined to the purification process undertaken by the appellants through distillation/recrystallisation as this was the question posed before me as Third Member for resolving the difference of opinion in the order of the Hon’ble Members of this Tribunal who heard the matter originally and which judgment is reported in [1991 (56) E.L.T. 393 (Tribunal)].
4. The appellants were issued with a show cause notice dated 30-3-1983 alleging that the process of purification amounts to process of manufacture. The appellants filed their reply dated 2-9-1983. Relevant portion of the reply is extracted below :
4.1 The facts in brief of the cases are that we are manufacturers of laboratory and fine chemicals like Ammonium oxalate. Ammonium acetate etc. the details of which are given in Annexure ‘A’ to our Classification list submitted with effect from 1-4-1983. We also purify certain products purchased by us from the open market by various methods namely, simple distillation, filteration, crystallization, etc. Some of the products purchased by us from open market are subjected to processes like grinding, sieving etc. We enclose herewith the actual processes carried out for purification, grinding etc. as Annexure I. As will be seen from the said Annexure, we are not manufacturing any new product and the process of distillation is not that of fractional distillation so as to obtain different products from the original one which is subjected to the process of distillation.
4.2 The processes of crystallisation and grinding are simple processes and do not amount to process of ‘manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 as explained hereinafter. The process of distillation consists of simple distillation and not fractional distillation. We submit that the process carried out on goods which are subjected to grinding, crystallisation of refinement does not amount to a process of ‘manufacture’ within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
4.3 We further submit that, if necessary, your goodself will be kind enough to visit our factory and see the actual processes carried out by us to appreciate the fact that by carrying out the activity of crystallisation, purification, grinding etc., we do not bring into existence any new product and only remove negligible quantity of impurity which remains in the original product purchased from open market. On your visit, we will also convince you that we have not got machinery to manufacture the products which are merely purified, crystallised or subjected to process of grinding, sieving etc.
Recrystallisation: (By concentration method)
In this purification process already manufactured chemicals are purified by dissolving in water by steam heating and stirring and then filtering the same to remove undissolved impurities. The filtered liquid is then concentrated by steam heating and stirring thick slurry. Thick slurry is centrifuged to get almost dry pure chemicals containing moisture. Then same is dried.
If Aluminium ammonium sulphate – ALNH4(SO4)2. 12H2O M.W. 453.32 is purified then chemical remains the same chemical i.e. Aluminium ammonium sulphate ALNH4 (SO4)2. 12H2O M.W. 453.32. That means that chemical properties remains the same. In this process no new product emerges.
Distillation: (Simple distillation)
In this purification process, the liquid chemicals (solvents) are poured into distillation units and then heated either electrically or by steam and the distillates are collected in the other vessel. In this process, the first distillates is taken out and thereafter whatever material comes is collected which is in pure liquid form. The remaining liquid (last residue) about 1 to 2 liters are taken out.
If Acetic acid glacial- CH3.COOH – M.W.60.05 is distilled then the chemical remains the same chemical i.e. Acetic acid glacial-CH3.COOH – M.W.60.05. That means that chemical properties remains the same. In this process, no new product emerges. The process does not involve fractional distillation.”
5. The appellants filed their further reply dated 25-11-1983, inter alia, contending that the process of purification of chemicals undertaken by them through the process of distillation/recrystallisation does not amount to manufacture in terms of Section 2(f) of the Act inasmuch as no new product with distinct name, character and use has emerged, and the product remains the same both prior to and after the process of purification, undertaken by the appellants. It is further contention of the appellants that there is only a fractional increase in purity level of the chemical after the process of purification and no new product has emerged by way of this increase in purity level. The appellants also gave various examples for the increase in the purity level after the process of recrystallisation/distillation. Relevant portion of this reply is reproduced below:
“We do not agree to your contention that the purpose of these two processes is to obtain chemicals of very high purity confirming to particular specification so as to meet needs of chemical industry.
On the basis of above, the chemicals which have undergone distillation and recrystallisation will be deemed to be manufacture of special grade of very pure chemicals for special purposes.
As such, we give hereunder our comments :-
Acetic Acid Glacial LR direct pack by us, is of purity 99.5% and we distill and marketing as AR grade is of purity 99.7% and EL grade is also 99.7%.
Benzyl alcohol LR direct pack item is 99% whereas distilled material marketed by us as EP II is 99%, AR is 99% and IP is 99%. For recrystal-lised items, we give hereunder examples :-
Aluminium Ammonium Sulphate LR direct pack by us is 99% and recrystallized as AR is 99.05%. Someway Ammonium Chloride technical is 98.8%/99% recrystallized by us as LR 99%, AR 99.5%, IP 99%. How can anyone call all these purification a very high purity, where the purity increased is by fraction. Your contention that ‘on the basis of above, the chemical which have undergone distillation and recrystallization will deemed to be manufacture of special grade of very pure chemicals for special purpose’.
Every chemical has a different use like Ammonium Chloride has uses as under :-
Dry batteries, Mordant (dye and printing) Soldering Flux, Manufacture of various ammonia compounds, Fertilizer, pickling agent in zinc coating and tinning, electroplating, washing powders, snow treatment, resins and adhesive of urea formaldehyde, medicine, food industry etc. As such every industry has a special purpose of using the above chemicals. From the purpose, you cannot distinguish whether the item is manufactured or not ? But it should be taken chemically how the item is manufactured by changing its identity and known by a new trade name. Ammonium Chloride is manufactured ‘by product of ammonia Soda process’ but this process we do not carry out, whereas we buy as Ammonium Chloride and final product remains as Ammonium Chloride only. As such the special purpose has no bearing on manufacturing. The chemicals which are purifying have 90% uses for various industrial use and 10% uses in Laboratory for testing. Same way technical material have major various industrial uses and also minor uses in School and College in laboratory for testing. As such you cannot distinguish whether the item is manufactured or not, but chemical reaction must take place and produces a new product with new name, then only you can call as manufactured item.
ACETIC ACID AR & EL grades are used as Laboratory Reagents for synthesis in R&D in research for production of new items, rayon industry, pharmaceuticals, electronic industry and food additive. Distilled Acetic Acid of above all grades can also be used for manufacturing of cellulose acetate, acetic esters, production of plastics, dyes, insecticides, photographic chemicals, latex coagulant, textile printing, manufacture of various acetates, acetyl compounds, dyeing silk, solvents for gums, resins volatile oils.
BENZYL ALCOHOL EP, IP & AR grades are used as Laboratory Reagents, for synthesis in R & D in research for production of new items, pharmaceutical preparations and flavours, photographic industry.
Distilled Benzyl alcohol of above all grades can also be used for manufacturing of Perfumes and Flavours, photographic developer for colour films, dyeing nylon filament, textiles and sheet plastics, solvent for dyestuffs, cellulose esters, casein, waxes, heat sealing polyethylene films, intermediates for benzyl esters, local anesthetic cosmetics, ointments, emulsions, ball point pen inks, stencil inks, benzyl compounds, solvents for gelatine, solvent for cellulose acetate, shellac.
AMMONIUM CHLORIDE LR, AR & IP grades are used as Laboratory reagents for synthesis in R & D research for production of new items, pharmaceutical industry, food industry.
Recrystallized Ammonium chloride of above all grades can also be used for manufacturing of mordant (dyeing and printing) soldering flux, manufacture of various ammonia compounds, pickling agent in zinc coating and tinning, electroplating; resins and adhesive of urea-formaldehyde, freezing mixtures, to clean soldering irons, safety explosives, luster cement for iron pipes.
SODIUM CHLORIDE IP & AR grades are used as Laboratory reagents for synthesis in R & D in research for production of new items, phar-maceuticals and food industry. Recrystallized Sodium Chloride of above all grades can also be used for manufacturing chemicals, ceramic glazes, metallurgya, curing of hides, mineral waters, regeneration of ion exchange resins, photography, herbicide, fire extinguishing, nuclear reactors, salting out dyestuffs, for dyeing and printing fabrics.”
The appellants also relied upon the opining dated 1-12-1983 given by Maharashtra College of Arts & Science opining that the process of distillation and recrystallisation is only a purification process and not manufacturing process. The appellants also relied on the opinion dated 5-12-1983 of the Section Head, Physical Chemistry, Institute of Science.
6. The Assistant Collector of Central Excise, Bombay passed the order dated 31-3-1994 holding that the process of distillation and recrystallisation does not amount to manufacture. Against this order, the Department filed an appeal under Section 35E (4) of the Central Excises and Salt Act, 1944 before the Collector (Appeals), Bombay. The Collector (Appeals) after granting an opportunity of personal hearing, passed order in appeal No. M-23/B11-14/87, dated 20-1-1987. The relevant portion of the order-in-appeal is reproduced below :-
“I have carefully gone through the case records, various arguments contained in the application in Form EA-2, Cross objection, Memo/Written submission and those argued by the Representatives of both the parties during the course of personal hearing. In the instant case, the products in question have a distinct identity and use as compared to the raw materials used for their production and these are also known in the trade parlance as distinct from the raw materials. The Hon’ble Supreme Court in the case of Union of India v. Delhi Cloth Mills [1977 (1) E.L.T. J 199)] and in the case of South Bihar Sugar Mills v. Union of India [1978 (2) E.L.T. (J 336)] has taken above view. Order-in-original passed by the lower authority is not correct, so it is set aside and application under Section 35E (4) is allowed.”
7. Aggrieved by the order of the Collector (Appeals), the appellants had preferred the appeal before this Tribunal which was heard by a Bench of two Members. The learned Member (Technical) held that process of purification of bought out chemicals is not one of manufacture creating excisable goods and hence proposed setting aside of the impugned order and allowing the appeal. However, learned Member (Judicial) held that purified chemicals are traded in different commercial name and altogether different uses and hence on the ratio of the judgment of the Hon’ble Supreme Court in the case of Union of India v. Babubhai Nylchand Mehta proposed rejection of the appeal. The point of difference namely “whether the process of purification of chemicals by the methods of recrystallisation and distillation to make them fit for use as high purity laboratory chemicals will amount to a process of manufacture under Section 2(f) of Central Excises and Salt Act, 1944 bringing into existence goods commercial different from the starting material”, was referred to me to resolve the issue. I heard both the sides and passed an order agreeing with the view expressed by Member (Technical) that the process of purification by recrystallisation and distillation will not amount to a process of manufacture under Section 2(f) of Central Excises and Salt Act, 1944. In view of the majority decision, the impugned order was set aside and the appeal allowed. The Revenue took up the matter before the Hon’ble Supreme Court which by its order dated 30th March, 1995 has remitted the matter for fresh opinion.
8. The matter was accordingly heard by me on 25-8-1995. The learned Counsel for the assessees firstly contended that when manufacture is alleged by the Department, the Department has to prove its case by leading in material evidence in support of its case and in the present case, the Department has not discharged this burden cast on it. The learned Counsel for the assessees relied upon the replies dated 25-9-1983 and 15-11-1983 and contended that even after purification, the product continues to have the same name, character and use. The chemical name and the chemical formula/composition of the product remained the same. There is no change whatsoever in the properties of the product. Both prior to purification and after purification, the product is sold in the same name and it also has the same character. The use of the product has also not changed. Citing the example of Acetic Acid and Ammonium Nitrate as an illustration, the Counsel for the assessees contended that both prior to purification and after purification, the product is bought and sold and identified in the market only as Acetic Acid or Ammonium Nitrate as the case may be. Thus, there is no change in the name of the product. The character of the product remains the same totally. The product is also put to use as Acetic Acid or Ammonium Nitrate only. Even when it is used in the laboratory, it is used only as Acetic Acid or Ammonium Nitrate only. It was contended by the learned Advocate that based on the particular use which the commodity is put to, out of the various possible uses, the product cannot change. The learned Counsel for the assessees also contended that there is no basis or evidence in support of the learned Member (Judicial)’s finding in Para 12 of the order that the name, character and use of the product has changed after purification.
9. Replying to the contentions of the learned Counsel, Shri A.K.Madan, learned DR submits that the process of purification amounts to process of manufacture as all the tests for manufacture have been satisfied namely, emergence of a new product with new name, distinct new character and use. He submits that after purification, the chemicals lose their original identity and characteristics and become distinct new excisable commodities due to change in purity. He relies upon the decision of the Hon’ble Supreme Court in the case of Union of India v. Delhi Cloth and General Mills [1963 Suppl (I) SCR 586] in which the expression “manufacture” has been interpreted as ‘bringing into existence a new substance known to the market’. He also cites the decision of the Hon’ble Supreme Court in the case of South Bihar Sugar Mills Ltd. v. Union of India [1969 (3) SCR 21] and Empire Industries Ltd. v. Union of India [1985 (3) SCC 314] and contends that the test of manufacture laid down therein by the Supreme Court has been satisfied in the present case. He relies upon the findings of the authorities below and also presses into service the order recorded by Member (J).
10. I have carefully gone through the records of the case and considered the arguments advanced by both the sides. The definition of recrystallisation and distillation as found in the McGraw Hill Encyclopaedia of Science and Technology and in the Condensed Chemical Dictionary by Hawley have been reproduced already by the learned Member (J). Simple distillation has been defined in Hawley’s Condensed Chemical Dictionary, 10th Edition at Page 926 as follows:
“Distillation in which no appreciable rectification of the vapour occurs i.e. the vapour formed from the liquid in the still is completely condensed in the distillate receiver and does not undergo change in composition due to partial condensation or contract with previously condensed vapour”.
11. The first submission of the assessees is that the burden of proof on the question of manufacture is squarely on the Revenue and that the Revenue has not discharged its burden in the present case. It is seen that the Collector (Appeals) in his order dated 20-1-1987, while reversing the order of the Assistant Collector, has merely stated that the product in question has distinct entity and use as compared to the raw materials used for production and these are also known in the trade parlance as distinct from the raw materials. No basis of evidence whatsoever has been cited by the Collector (Appeals) in support of this conclusion. Even before me, the learned DR has not placed any material to substantiate this finding of the Collector (Appeals). In the reply dated 25-11-1983, appearing at pages 40 to 44 of the paperbook, the appellants have pointed out as to how the Revenue’s contention that there is substantial increase in purity is not correct. The correctness of this factual position indicated in the reply before the original assessing authority at the very first stage had not been disputed by the Revenue at any stage. Even the learned DR did not dispute the correctness of the submission regarding the percentage of increase in the purity level. It is thus evident from the reply dated 25-11-1983 which has not been disputed by the Revenue that the percentage of increase in the purity on account of the process of purification viz. distillation and recrystallisation undertaken by the appellants is not significant. In the illustration pointed out in the reply the increase in the purity level is less than 1% and generally the increase is of 0.1% to 0.5%. Though, this by itself may not be conclusive, the factual position that there is only a marginal increase in the purity level is significant for deciding the question as to whether a totally new commodity emerges on account of distillation/recrystallisation.
12.1 Relevant extract from page 7 of Hawley’s Condensed Chemical Dictionary, 11th Edition dealing with Acetic Acid, in so far as material for the present purpose, is as under:
“Acetic Acid
Derivation: (a) Liquid and vapour-phase oxidation of petroleum gases (with catalyst); (b) oxidation of acetaldehyde; (c) a reaction of methanol and carbon monoxide (with catalyst). This is the most cost-efficient method and has been in general use for some years; (d) fermentative oxidation of ethanol.
Grade: USP (glacial, 99.5 wt %, and dilute 36-37 wt %); CP: technical (80: 99.5%); commercial (6,28,30,36,56,60,70,80 and 99.5%); NF (dukyted: 6.0g/1100ml)
Use: manufacturing of acetic anhydride, cellulose acetate, any vinyl acetate monomer; acetic esters; chloroacetic acid; production of plastics, Pharmaceuticals, dyes, insecticides, photographic chemicals, etc. food additive (acidulant); latex coagulant’ oil-well acidizer; textile printing”
12.2. Similarly, relevant extract from page 69 of Hawley’s Condensed Chemical Dictionary, 11th Edition dealing with Ammonium Nitrate, in so far as material for the present purpose, is as under:
“Ammonium nitrate
Derivation: Action of ammonia vapour on nitric acid
Grade: usually expressed in percent of nitrogen as 20.5%N, 33.5%N. FGAN is a fertilizer grade, prilled and usually coated with kieselguhr. Also available as an 83% solution. A temperature-stabilized grade is also available which inhibits breakdown of prills due to crystalline changes.
Use: Fertilizer, explosives, especially as prills/oil mixture, pyrotechnics, herbicides and insecticides, manufacture of nitrous oxide absorbent for nitrogen oxides, ingredient of freezing mixtures, oxidizer in solid rocket propellants, nutrient for antibiotics and yeast, catalyst”.
Thus, under the title Derivation the various methods of making of Acetic Acid have been set out. It is seen therefrom that the starting material for the manufacture of Acetic Acid would be petroleum gas, acetaldehyde, methanol, carbon-dioxide and ethanol. The processes adopted are respectively given as liquid and vapour phase oxidation, oxidation, reaction in the presence of a catalyst and fermentative oxidation. In the present case, however, the appellants start with Acetic Acid of purity 99.5% and end with Acetic Acid of 99.7% purity.
13. The Hon’ble Gujarat High Court in the case of Vijay Textile v. Union of India [1979 (4) E.L.T. (J 181)] in Para 10 of the judgment had referred to a judgment of King’s Bench in Michical v. Finch (1906) 2 KB 352. The appellants before the Court in that case subjected a certain ‘330 sachharine (that is sach-harine 330 times as sweet as sugar) to a chemical process, the result of which was that in some cases, ‘550 sachharine (that is sachharine 550 times as sweet as sachharine) was produced, in others a mixture sweeter than 330, but not as sweet as 550 Sachharine. It was held by the Court that the appellants were not manufacturing sachharine within the meaning of the Finance Act, 1901, so as to be compelled to take out the excise licence required by Section 9 of that Act and Section 2 of the Revenue Act, 1903 and to obtain from an officer of Inland Revenue, a book such as prescribed by Regulation No. 633 of the Statutory Rules, 1904, inasmuch as the substance the appellants dealt with, was always sachharine both before and after their treatment of it. The relevant portion of the judgment is reproduced below:
“We have to determine whether upon the facts stated in the case the appellants did manufacture sachharine. Let us see what those facts are. One of the admitted facts is that sachharine is a substance produced from toluene sul-phonamide. That is the definition of sachharine. This sachharine was not produced by the appellants from toluene sulphonamide; but it was always sachharine; it was sachharine before it was treated, and it was sachharine after it was treated”.
Applying this test, in the present case, Acetic Acid cannot be said to have been manufactured from any of the methods mentioned above. Certainly the process of distillation/recrystallisation of the chemicals which only improves the purity level and that too marginally, would not satisfy this test. There is no dispute by the Revenue that on account of the purification undertaken by the assessee there is no change in the name of the product; for instance Acetic Acid after purification continues to be called as Acetic Acid only and not by any other name. Thus, there is no change in the name. There is no change in the chemical composition or structure or chemical formula of the product. No new ingredients have been added by the assessee. It is also evident from the letter dated 1-12-1983 of Maharashtra College of Arts and Science (pages 49 & 50 of the paper book) that though some chemical is required to be added to remove impurities, it remains with the residue and the distilled chemical remains unchanged with reference to its formula and molecular weight. Thus, the name and character of the product continues to be the same. As regards the use, the appellants have contended that even after purification the product is used as Acetic Acid or Ammonium Nitrate as the case may be. A product is used only for its properties. In the reply dated 25-11-1983 the appellants pointed out the various and different uses which the Acetic Acid can be put to (page 41 of the paper book). Similarly, they have indicated the diverse uses which Acetic Acid is put to. In the reply dated 25-11-1983, they have pointed out as under:
“In our case even after reducing of impurities the products are used both by industrial consumers who require pure chemicals and others who may not require pure chemicals”.
Further, in the memorandum of Cross objection filed before the Collector (Appeals) at page 60, the appellants have submitted as under :
“Both the products received for purification and obtained after purification bear the same name (with change of grade) and both of them can be put to identical use. No ground is given in support of the contention that the end product has distinct identity and use as compared to the raw materials, which are subjected to the process of purification”.
Thus, even going by the criteria of use, there is no difference between the starting material and the purified chemical.
14.1 In the case of Collector of Central Excise v. Anil Chemicals Private Ltd. [1985 (21) E.L.T. 889 (Tribunal)], this Tribunal was concerned with the issue whether the production of prilled ammonium nitrate 99% from AN 75% to 82% amounts to manufacture and it was held therein that the process does not amount to manufacture and that mere concentrating a product will not by that fact produce a different product. In Paragraph 16, Tribunal observed as follows:
“It would be easy to say that prilling results in a higher concentration and amounts to manufacture. It is difficult to see why this would be so. There is no authority whatever for saying that concentrating a product will by that fact alone produce a different product. It may perhaps be said that there has been processing and a manufacture but if the result is the product of the same goods, even a higher purity than the manufacture/processing cannot have the effect of making the purer product liable by that fact alone to excise duty. A manufacture under the Central Excises and Salt Act is required to be a manufacture that creates an excisable goods. A manufacture that does not have this effect is of no interest to Central Excise.”
14.2 The argument of the learned DR that the decision supra does not discuss test of commercial understanding which is extremely relevant to determine whether after the recrystallisation and distillation, the chemicals are understood differently in the market from the less pure chemicals cannot be accepted. The trade understanding of the chemicals in this case is with reference to the different end use – the chemicals prior to recrystallisation and distillation remain chemicals after the above-mentioned processes are carried out although their purity increases. Much has been made of the admission by the learned Counsel for the appellants and recorded in Paragraph 4 of the order of the learned Member (Judicial). The admission is to the effect that the trade understanding of the ordinary chemicals and laboratory chemicals are different and that the laboratory chemical cannot be used as ordinary chemicals as there will be variance in result. This admission has to be read in its entirety as meaning that the trade understanding is with regard to end-use and not as amounting to admission that both ordinary chemicals and laboratory chemicals are different products. At this stage Shri Sridharan draws my attention to the reply to the show cause notice dated 25-11-1983 (which has been referred to earlier in this order) in which the appellants had set out several uses of ammonium chloride as under:
“Dry batteries, Mordant (dyeing and printing), Soldering flux, manufacture of various ammonia compounds, fertilizer, pickling agent in zinc coating and tinning, electroplating, washing powders, snow treatment, resins and adhesive of urea formaldehyde, medicine and food industry, etc.”
15.1 In the decision of the Tribunal in the case of ILAC Ltd. v. Collector of Central Excise, Bombay – 1985 (23) E.L.T. 532 (Tribunal), it was held that the calcium carbide in that case though sub-standard, was still calcium carbide and was used as calcium carbide. Therefore, it must be treated under the excise law as calcium carbide with all the consequences that follow. The point to be emphasised in this case is that purity and grade of the chemical is not material for determining excisability but the test is whether the goods continue to remain the same even after purification i.e. whether the chemicals like ammonium chloride continue to remain ammonium chloride, etc. even after the processes of recrystallisation and distillation.
15.2 In the case of Collector of Central Excise v. Bakul Aromatics & Chemicals Ltd., [1989 (43) E.L.T. 758 (Tri.)] the Tribunal was concerned with the question whether concentration of 65% formic acid to 85% formic acid by removing excess water would amount to manufacture and it was held therein that the product subjected to the process of removal of excess water and the product obtained by removal of the excess water are one and the same viz. formic acid and no new commodity emerges out of this process so as to amount to manufacture. The Bench in that case followed the ruling of Anil Chemicals case.
15.3 The Hon’ble Supreme Court in the case of Dy. Commercial Superintendent Sales Tax v. Pio Food Packers -1980 (6) E.L.T. 343 (SC) laid down that manufacture is the end result of one or more processes through which the original commodity is made to pass and although the nature and extent of processing may vary from one case to another, yet it is when the change or a series of changes take the commodity to the point where commercially that article is recognised as new and distinct article, that a manufacture can be said to have taken place.
15.4 In the decision of the A.P. High Court in Brooke Bond India Ltd. v. Union of India and Ors. reported in [1984 (15) E.L.T. 32 (A.P.)] the High Court has held that duty on mixture of Coffee and Chicory resulting in a distinct commercial commodity did not amount to double taxation on the same commodity. In Paragraph 50 of the judgment, the High Court held that the principle which emerges is that a process is adopted for convenience of sale or making the article of more use to the customers, if the article in question retains its essential character, it has to be taxed as such article only and the processing would make no difference. The physical stage or even composition may change, but so long as the essential character of the article continues to remain the same, it has to be taxed as that commodity alone. The test for determining whether ‘manufacture’ can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. The test laid down by Pathak, J. in Pio Food Packers’ case [1980 (46) STC 63 (S.C.)] should be the guiding principle in determining the question whether a particular commodity has been subjected to the process of manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kind of processing at each stage. With each process suffered the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. The test that is required to be applied is: does the processing of the original commodity being into existence a commercially different and distinct commodity? On an application of this test, it is clear that the blending of different qualities of one possessing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive, but with each process suffered the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material”.
16. The test of manufacture laid down by the Hon’ble Supreme Court in the case of Union of India and Ors. v. Delhi Cloth and General Mills Co Ltd. and Ors. – 1977 (1) E.L.T. (J 199) is that a new and different article must emerge having distinctive name, character or use. The same test was reiterated in the case of South Bihar Sugar Mills v. Union of India -1978 (2) E.L.T. (J 336) wherein the Supreme Court affirmed that the word ‘manufacture’ implies a change but every change in the raw material is not manufacture and there must be such transformation that a new and different article must emerge having a distinct name, character or use. In the case of Empire Industries Ltd. v. Union of India -1985 (20) E.L.T. 179 (SC), the Hon’ble Supreme Court held that, if by application of labour and skill an object is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of Central Excise. The test of manufacture as laid down by the Hon’ble Supreme Court in the case of Ujager Prints v. Union of India – 1988 (38) E.L.T. 535 was to determine as to whether the change or series of changes brought about by the application of processes take the commodity to the point where, commercially it can no longer be regarded as the original commodity but is instead recognised as a distinct and new article that has emerged because of the result of the processes.
17. In the present case, admittedly only the grade of the chemical gets change and hence the test of manufacture as laid down by the Hon’ble Supreme Court in the cases cited (supra) is not satisfied as purification of a chemical to obtain another grade of the same chemical, particularly when the purification is marginal, cannot be said to result in a totally new chemical commodity.
18. The question may be examined from the context of the new Central Excise Tariff Act, 1985. Therein sub-heading 2915.10 covers Acetic Acid. Evidently, the material being purchased by the appellants from the market would have suffered duty as Acetic Acid under sub-heading 2915.10. Even after purification, there is no dispute that the product is being sold by the appellants in the market only as Acetic Acid. If the Revenue were to levy excise duty on the purified Acetic Acid, it would only be under sub-heading 2915.10 only. That would clearly amount to double taxation. This anomaly does not get highlighted in the present matter because the Department is levying duty under Tariff Item 68 of the Schedule to the erstwhile Central Excise Tariff. It is an accepted and agreed position in the present case that the purification of chemicals is not included as a process of manufacture under Section 2(f) of the Act as it stood prior to 28-2-1986 nor is there any chapter note in any of the chapters treating purification of chemicals as amounting to manufacture.
19. As can be gathered, the key test is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity. In my view in the instant case this test has not been satisfied as the chemicals prior to the two processes concerned herein continue to remain the same after being subjected to the processes, admittedly with only a change in increase in purity. The commodity retains its identity substantially through the processing stage. Therefore, it cannot be said to have been manufactured.
20. In the light of the above discussion, I am of the view that on account of the distillation/recrystallisation undertaken by the appellants, no new commercial commodity has come into existence, having a distinct name, character or use. The activity of distillation and recrystallisation undertaken by the appellants cannot be said to result in a transmission which changes the name, character or use.