ORDER
Jyoti Balasundaram, Member (J)
1. The issue involved in all these appeals is a common one and, hence, the appeals disposed of by this common order.
2. The issue is dispute is whether the process of the conversion of technical grade pesticides and insecticides (concentrated grande, usually manufactured at 70% or above concentration) to formulation grade pesticides and insecticides of 1% concentration by addition of suitable diluents, such as solvents, emulsifiers, surface active, dispersing and stabilising agents and inert carriers/solvents amount to manufacture. The authorities below have held that such process results in manufacture of new distinct products having “different properties viz., composite for direct use and hence, confirmed demand of Rs. 55,82,203/- confirmed in order dated 24/04/96 for the period 03/05/95 to 31/08/95, Rs. 56,72,110/- confirmed in order dated 24/04/96/ for the period 01/09/95 to 31/12/95, Rs. 56,76,695/- for the period January 96 to May 96 and Rs. 45,56,839/- for the months of June 96 to July 96 confirmed in order dated 18/03/97, (Total duty demands equal Rs. 2,14,87,847/-) against which the assessees have preferred three appeals bearing Nos. E/156/98, E/157/97 and E/158/98. Appeal No. E/495/01 has been filed by the Revenue against the order of the Commissioner (Appeals), who has accepted the assessee’s contention that the process above mentioned does not amount to manufacture in the light of the ratio of the Tribunal’s decision in CCE Vs. Markfed Agro chemicals, 2002-Taxindiaonline-38-CESTAT-DEL-SB, rejecting the appeal of the Revenue against the approval of classification list No. 14 dated 06/03/95 of the assessee, by the Assistant Commissioner, Panvel.
3. We have heard both sides. We find that the issue came up for consideration by the Tribunal in the case of CCE Vs. Markfed Argo Chemicals Cited supra, wherein the tribunal held as under : –
“It is seen that the processing of the concerned basis pesticidal chemicals in question carried out by the respondents through addition of inert carriers/solvents and dispersing and establishing agents resulted only in their diluting rendering them suitable for use either directly or after addition of water and formulations retained the name of the basis chemicals. Evidently no new product having distinctive name, character and use appeared as a result of such processing. Under these circumstances on the ratio of the decisions quoted above, we hold that the process carried out by the respondents did not constitute ‘manufacture’ within meaning of Section 2(f) of the Central Excise and Salt Act, 1944”.
4. It is significant to note that the Revenue did not file an appeal against the above decision. Instead, the CBEC issued an order under Section 37B of the Central Excise act, on 27/07/95 to order that “addition of chemicals and other ingredients like inert carriers or solvents and also surface active, dispersing and stabilising agents to presticidal chemicals in highly concentrated from would amount manufacture within the meaning of section 2(f) of the Act, since it results in the emergence of a new and distinct product having different properties viz., pesticide/insecticide fit for direct use.” The show cause notices in the present case were issue subsequent to the Section 37B order; which was challenged by the assessee before the Hon’ble Bombay High Court in W.P. No. 6289/95 and the High court directed the Assistant Commissioner to hear the assessee and decide the case without being bound by the Circular dated 27/07/97 issued by the CBE&C. In pursuance of the High Court’s order, the notices were adjudicated and the demands confirmed by holding that the process carried out by the appellant amounted to manufacture as the process was not merely dilution of the concerned but also resulted in modification of surface active, properties as well as modification of strength of technical grade pesticides, thus bringing out new products having new names. The matter was carried up in appeal to the Commissioner (Appeals), who passed the impugned order upholding the demands. However, prior to the passing of any of the orders of adjudication, which are dated 24/04/96 and 18/03/97, challenge was made to the circular issued under Section 37B before Hon’ble Gujarat High Court, which by its order dated 15/04/96 in Special Civil application Nos. 8580/95, 8730/95 and 9034 to 9036/95, quashed the Circular and set it aside, holding the Section 37B of the Central Excise Act, does not authorise the board to issue directions contrary to the decision of the Tribunal. The said circular was also struck down by the Delhi High Court in C.W.P. Nos. 3903/95, 3836/95, 3939/95 and 1008/96 in the case of Kissan Chemicals.
5. The Tribunal’s decision in the case of Markfed Agrochemicals, therefore, holds the field and its required to be followed, particularly when the processes carried out by Markfed Agrochemicals, 2002-Taxindiaonline-38-CESTAT-DEL-SB, the appellants before us are the same, and have not been distinguished.
6. Ld. DR seeks to distinguish the earlier order by drawing out attention to the finding of the Assistant Commissioner that the process carried out by the appellants herein also modified the surface active properties of the pesticides, but this finding in not based upon any material on record, such as test reports, etc. of the products in question and further such point viz., that the surface active properties get modified, which was raised in the show cause notice, was rebutted by the appellants in their reply. As regards the change in the strength of the products by the dilution, we note that in the case of Markfed Agrochemicals, the same issue was before the Tribunal, which held that dilution of concentration (Which) results in modification of strength) did not amount to manufacture of a new product having distinctive name, character and use. In order to constitute manufacture, a new product having distinctive name, character and use must emerge as a result of certain process. In other words, all three tests are required to be satisfied before a product is held to be a result of manufacture. In the present case, all three tests are not satisfied.
7. In the light of the discussion, we hold that the activities carried out by the appellants do not amount to manufacturer, set aside the duty demands and allow the appeals of the assessee. The Revenue’s appeal is dismissed.
Jyoti Balasundaram
Member (Judicial)
Separate Order by Shri C. Satapathy
Member (Technical)
1. I have carefully gone through the order recorded by my learned Sister. I note that after making the initial blunder of not appealing against the decision of the Tribunal in Markfed (supra) on the ground of insubstantial revenue involved in that the case, the Department has been doggedly pursuing the matter to overcome the said tribunal decision of 15.5.93. The duty demands of over Rs. 2 Crores involved in these appeals bear testimony to such efforts. Initially, the Board issued a Circular on 27.7.95 under Section 37B of the Act to the effect that conversion of pesticides of technical grade to formulation grade would amount to manufacture within the meaning of Section 2(f) of the Act since it results in the emergency of a new and distinct product having different properties. The High Court of Bombay, Gujarat and Delhi did not approve of the Board seeking to reverse the decision of the Tribunal by issuing a circular under Section 37B. The circular was therefore quashed. As has been noted in the Apex Court’s decision in UOI V/s. Pesticides Mfg. and Formulators Assn. of India, 2002-Taxindiaonline-117-SC-CX, it was to overcome the effect of the Markfed decision that amendments were effected by the Finance Act, 1996 to incorporate statutorily the substance of the circular.
2. I find that the Markfed decision has been followed by the Tribunal in the following cases : –
(i) Kilpest India Ltd. CCE – 1999 (110) ELT 866
(ii) CCE, Guntur Vs. Winfield Chemical India 2002 (140) ELT 477
(iii) CCE, Coimbatore Vs. Kayes Agro Industries – 2001 (132) ELT 701
3. However, in all these cases, the Department has gone in appeal to the Apex Court against the Tribunal decisions as seen from : –
(i) 2000 (121) ELT A 73 (SC).
(ii) 2002 (142) ELT A 170 (SC).
(iii) 2002 (143) ELT A 264 (SC).
4. These appeals have been admitted by the Apex Court on 13.10.1994, 14.01.2002 and 06.05.2002 respectively, but the outcome of the same in respect of cases at (i) and (ii) above is not known, whereas in the case at (iii) above, the civil appeal was dismissed after condoning the delay.
5. In view of the fact that two civil appeals have been admitted by the Apex Court and decisions in these cases are awaited and one civil appeal has been dismissed by a non-speaking order, the question arises as to whether there is any scope for considering the correctness of the Tribunal’s decision in Markfed (supra). It is seen that a similar question has been decided recently on 27.03.2003 by the Apex Court in the case of C.C.E. Vs. Technoweld Industries, 2002-Taxindiaonline-111-SC-CX, Paragraph 5 of the said decision of the Apex court is reproduced below : –
“Reliance was placed upon the authority of of this court in the case of S. Shanmugavel Nagar Vs. State of T.N and Another reported in 2002 (8) SCC 361. It was submitted that all the civil appeals had been dismissed by non-speaking orders. It was submitted that it is open to this Court to consider whether or not the impugned decisions of the Tribunal are correct. There can be no dispute, with this proposition. We have, therefore, heard the learned counsel at length.”
6. In sun Export Corporation Vs. C.C., Bombay, 2002-Taxindiaonline-118-SC-CX, decided earlier on 07.07.1997 by a Bench of Three Judges of the Apex Court, it was also held in paragraph 13 as follows : –
“No doubt it is was contended on behalf of the Revenue that the contrary view taken by the Tribunal has been challenged in this court which was rejected in limine at the admission stage. We do not think that dismissal at the admission stage can be relied upon as a binding precedent.”
7. In view of these decisions of the Apex Court, it appears that Tribunal’s decision in markfed (supra) cannot yet be taken as a binding precedent apart from the fact that two civil appeals against Tribunal orders which followed Markfed have been admitted by the Apex Court and that the decision in these cases are awaited.
8. Moreover, in Markfed, the Tribunal in paragraph 4 of its order has taken into account the fact that the technical grade pesticides retained the same name even after processing into formulation grade pesticides. In the cases under our consideration, the adjudicating Assistant Commissioner has recorded a clear finding as seen at p7 of Order-in-Original No. B-III/P-II/43/97 dt. 14/18.3.97) as follows :-
“The assessee also market the formulation grade pesticides in units packing by names different than those of their technical grade pesticides.”
9. In fact, this in one of the reason for which he has not been able to apply to ratio of Markfed decision to the present case as recorded by him in the said order. As such, the fact situation in the present case is materially different from that of Markfed in this regard.
10. Even otherwise, I am unable to honestly agree with the ratio of the decision arrived at by the Tribunal in the case of markfed (supra) for the following reasons : –
1) markfed has relied on the ratio of Sandoz India Ltd. Vs U.O.I. and Others – 1980 (6) ELT 696. In the case of Sandoz, firstly Foron liquid was obtained by conversion from the solid stage and secondly on the basis of material that was available in the case, the Court came to a conclusion that it was not possible to hold the process amounting to manufacture. In may view, the process considered in Sandoz was not similar to the one involved in manufacture of formulation grade pesticide as it is not a case of conversion from solid state to liquid state and therefore, the ratio of Sandoz in not applicable to the case at hand.
2) Markfed (supra) also referred to the ratio of the Apex court decision in the case of Dy. Commissioner Sales Tax Vs. P.I.O food Packers, 2002-Taxindiaonline-67-SC-CT. In the said case, the Apex Court has held that though nature and extent of processing may vary from one case to another, yet it is only when the change, or a series of changes take the commodity to the point where commercially it is recognized as a new and distinct article that manufacture can be said to have taken place. While applying this ratio to the case at hand, the Tribunal concluded in Markfed that the processing of the concentrated basis pesticidal chemical resulted only in their dilution rendering them suitable for use either directly or after addition of water and formulations retained the name of the basis chemicals. As such, it appears that in Markfed, the Tribunal incorrectly applied the ratio of the Apex Court decision to the case at hand by erroneously treating the process of making the formulation grade pesticide to be a case of mere dilution and also ignoring that the processing resulted in a product which became marketable and was commercially sold as a new and distinct commodity which the buyers could directly use whereas the technical grade pesticides could not be so marketed and used.
3) The Adjudicating Assistant Commissioner in the present case has brought out in his finding the clear difference between the technical grade pesticides used by the appellants for manufacturing the formulation grade pesticides marketed by them in his aforecited order which is extracted below : –
“The assessee manufacture Technical Grade Pesticides and insecticides, which is concentrated grade, usually manufactured at 70% or above concentration. These are brought down to 1% concentration by addition of suitable diluents, adjuvents emulsifiers, wetting agents etc. The diluted pesticides thus formed are termed as formulation grade pesticides. The assessees’s contention is that such process of dilution does not amount to manufacture.
“The fact can not be denied that the Technical Grade Product, manufactured by the assessee, can not be directly used for the purpose for which the manufacturing activity is carried out by the assessee. The use of pesticides/Insecticides is in fields etc. by a laymen. The technical grade pesticide being highly concentrated in nature is thus highly toxic and cannot be ‘handled’ for use directly as its effect, then would be adverse to what it is intended for. it is thus essential on the part of manufacture, in this case the assessee to dilute the technical grade product to required level for direct use by any person. Unless the Technical grade pesticides and diluted to formulation grade pesticides, this cannot be made available for retail sale. If the assessee would have cleared only Technical grade pesticides these would have to be necessarily said to a consumer who would use it only of conversion to formulation grade pesticides. It is therefore very clear that the properties of technical grade pesticide vastly differ from formulation grade pesticides. The conversion process too cannot be simple as that made to look by the assessee in their submission. It was so the assessee would have/could have cleared/sold the technical grade pesticides having concentration 70% or more with necessary instructions along with the product for conversion to formulation grade at the user end. This however, it not the case. The person who an do the conversion has to be an expert in the subject. The person who can do the conversion has to be an expert in the subject. The use of the agents such as dust carriers, solvents, emulsifiers, wetting and dispersing agent, stickers, deodorants or masking agents to effect the conversion can not be a laymen’s job. The assessee contention that there is only change in physical from of the product is not correct. The changed from due to dilution by the above agents, results in a product (formulation grade) which is used in a manner different from the use of the technical grade product which in fact has of direct use and their is change in the surface properties of the new product as well. Reliance is placed on the judgment in the case of Industrial Plastic corpn. V/s U.O.I 1983 (12) ELT 42 (Bom) wherein it is ruled that, whereas article after change in its physical from can not be used for the purpose it could have been used before such change physical form will amount to ‘Manufacture”.
The above findings of the Adjudicating Assistant Commissioner as well as the case records bring out the following : –
(a) The technical grade pesticide it too string and is not capable of being used by the users for pesticide purposes.
(b) It needs conversion to formulation grade before it becomes marketable and usable at the hand of the ultimate users.
(c) The process of conversion is not simple and does not involve mere dilution but addition of so many other ingredients to impart the new product different properties including surface properties. Various kinds of chemicals are added to the base product to carry out the conversion and these include influents, adjuvents emulsifiers, dust carriers, wetting agents, dispersing agent, deodorant/masking agent to enable the end product to acquire new characteristics for its intended use apart from making it usable at the hand of the lay users.
(d) the process of conversion is sophisticated which cannot be carried out by the end users. The Markfed decision itself recognizes that the end user use the formulation grade either directly or after addition of water.
4) From the findings of the lower authorities it emerges that the process of conversion from technical grade pesticide to formulation grade pesticide resulting in a new commercial product with distinct and different use is not only a sophisticated process but is also an irreversible process.
5) There are a number of Apex Court decisions, the ratio of which support the case of the Revenue that conversion of technical grade pesticides to formulation grade pesticides resulting in new and different marketable commodities with different and distinct use amounts to manufacture. Some of these are : –
i) Indian Cable co. Ltd. V/s. C.C.E. Calcutta, 2002-Taxindiaonline-59-SC-CX.
A finding that goods are marketable is a pre-requisite for levy of duty. Marketable only means “saleable” or “suitable for sale”.
ii) U.O.I. Vs. J.g. Glass Industries Ltd. – 2002-Taxindiaonline-112-SC-CX :
whether the process is that of “Manufacture” is based on two-fold test- First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist-Secondly, whether the commodity which has already been in existence will serve no purpose or will be of no commercial user but for the said process.
iii) South Bihar Sugar Mills ltd. Vs. U.O.I. – 2002-Taxindiaonline-26-SC-CX .
Process is not equitable to manufacture and a new and different article must emerge having a distinctive name, character or use.
iv) Moti Laminates Pvt. Ltd. Vs. C.C.E., Ahmedabad – 2002-TaxindiaOnline-24-SC-CX
‘Manufacture’ or ‘Production’ Means bringing out a new commodity which must be useable, moveable, saleable and marketable. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling.
v) Union Carbide India Ltd. Vs. U.O.I & Others – 2002-Taxindiaonline-70-SC-CX.
Meaning of “Goods manufactured or produced” – To become ‘goods’, an article must be something which can ordinarily come to the market to be bought and sold.
The ratio of these decision of the Apex court when applied to the facts of the present case clearly makes one conclude that conversion of technical grade pesticide into formulation grade pesticide, by the addition of not only diluents but several other ingredients, making it suitable for marketing and commercial use by lay users for pesticide purposes amounts to manufacture of a new product, with different name, characteristics and use, under the Central Excise law. The fact that the technical grade pesticide with 70% and higher concentration cannot be so marketed and so used only emphasizes the difference between the two products.
In view of my findings as above, I reject the appeal Nos. E/156-158/98 filed by M/s. Sudarshan Chemical Industries Ltd. and allow the appeal No.E/495/01 filed by the Revenue.
Following difference of opinion is placed for reference to third member : –
Whether the appeals of the assessee are required to be allowed and the Revenue’s appeals require to be dismissed as proposed by Member (J) or whether the appeals of the assessee are required to be rejected and the appeal of the Revenue to be allowed, as held by Member (T)
ORDER NO. C-I/104 TO 107/WZB/2004
1. This matter referred to the third Member was heard on 10/12/2003. The orders prepared by the Ld. Member (J) and Ld. member (T) have been perused and the material on record and submissions made considered. it is found that : –
a) The facts of the case of dilution of technical grade pesticides into various lesser dilution and marketing them with brand name and the issues involved herein have been brought out in the order prepared by the Ld. Member (J) and the same are not being repeated.
b) The issue of whether manufacture “as understood under the Central Excise Act 1944 takes place it to be determined by the two-fold test as held in UOI Vs. J.G. Glass Industries Ltd, 2002-Taxindiaonline-112-SC-CX, which are
i) Whether by the said process a different commercial commodity comes into existence.
ii) Whether the identity of the original commodity ceases to exist in the case of laminated packaging, the Apex Court had held in para 6 of the said decision as under : –
“6….”The further contention urged on behalf of the appellant that the goods belong to the same entry is also not relevant because even if the goods belong to the same entry, the goods are different identifiable goods, known as such in the market. If that is so, the manufacture occurs and if manufacture takes plea, it is dutiable. ‘Manufacture’ as bringing into being goods known in the excise laws, that is to say, known in the market having distinct, separate and identificable function. On this score, in our opinion, there is sufficient evidence. If that is the position, then the appellant was liable to pay duty, we are therefore, clearly of the opinion that the order of the CEGAT impugned in this appeal does not contain any error. The appeal, therefore, fails and is accordingly dismissed.
c) The test of whether a different commodity known as such in the market have emerged on dilution of chemicals and whether the results in ‘manufacture’ under the Excise Laws has been agitating the minds for a long time. The King’s Bench in the case of McNicol Vs. Pinch (1996). had held that by a majority decisions, that the dilution of saccharin strength of 550 to the strength of 330 would not result in a different saccharin therefore, ‘manufacture’ under the Excise Act, of 1901 would not taken place to call for the controls under the Act. In the present case, it is found by a co-ordinated Bench of this Tribunal, in the case of Markfed Agro Chemicals Vs. CCE (1993 (68) ELT 848 (T) under similar situations of operations conducted on pesticides no new exigible goods result. This order of the Tribunal has been followed consistently by various Benches. In one of the cases, the Apex court after condoning the delay had dismissed the Revenue appeal, in other two cases no stay was granted and the decisions are awaited. No contrary decision of Tribunal has been brought out in the orders prepared and or submitted before me.
d) Needless to add, the judicial discipline should induce this Bench also to follow earlier orders of the tribunal in this matter as in the case of Markfed Agro Chemicals (supra). In that view of the matter the order prepared by member J) will have to be applied with consequences therein, how so ever much, the issues may require re-determination as held by Member (T).
2. Therefore, when no material could be specially pointed out, about emergence of a new identifiable entity, then merely because the brand name used is different, would not cause such commodity to be understand as identified and known differently by the person dealing with the same. In view of the findings, the reference is answered by upholding view of the Member (J) in the facts of this case.
3. The matter may now be place before the regular Bench.
Majority Order
In the result appeal Nos. E/156 to 158/1998-Bom filed by the assessees are allowed and appeal No.E/495/2001-Mum filed by the Revenue is dismissed.