ORDER
A.C.C. Unni, Member (J)
1. This appeal is directed against the order of the Collector of Central Excise (Appeals), Ghaziabad, dated 31-7-1992. The issue involved is whether the process purported to be carried out by the appellants is covered by Rule 173H of the Central Excise Rules, 1944.
2. Appellants are engaged in the manufacture of organic surface active products and preparations for use as soap in the form of cakes and surface active preparations like powder falling under sub-heading No. 3420.20 and 3420.90. According to the appellants sometimes the cakes/powders get damaged in transit and the wrappers in which they are packed also get deteriorated and such goods are received back from their dealers. The appellants received them back in terms of Rule 173H for repair and reconditioning of cakes and changing of wrappers. In the case of powder only wrappers are changed. In the case of other goods repairs are accounted for in Form V prescribed by the Collector of Central Excise, Meerut. Information in Form D-3 was also regularly submitted to jurisdictional Supdt. on receipt of the goods. The goods after reconditioning are again accounted for in Form V of the Register and then cleared without payment of duty as goods had already discharged the duty liability.
3. The Department alleged that the processing involved in repairing of the goods by the appellants amounted to manufacture and three Show Cause Notices were issued to the appellants on 11-9-1989, 21-9-1989 and 7-3-1990 demanding duty on the clearances made by the appellants. The lower authorities confirmed the demand. Hence the present appeal before the Tribunal.
4. On behalf of the appellants Shri S.D. Gour, ld. Consultant appeared. Shri V.R. Sethi, ld. JDR appeared for the Department.
5. The ld. Consultant contended that the items manufactured by the appellants and sent to the market are sometimes damaged due to bad handling in transit. The dealers sent them back for reprocessing which mainly involved putting of new wrappers in the place of torn or damaged wrappers. In the case of detergent cakes it involved reshaping of the cakes when the cakes are received back in damaged condition. This according to the Consultant cannot be considered to be a manufacturing activity since no new product has emerged after the process with a distinct or different name or use. The re-packed powder remain repacked and the remoulded detergent cake remained a detergent cake after the re-processing done by the appellants. He submitted that this was a clear case covered by Rule 173H and the demand for duty was not justified.
6. Ld. JDR drew attention to the observations of the Assistant Collector in the order-in-original. In the finding part of the order of the Assistant Collector the Assistant Collector had gone into the process involved in the so called repair carried out by the appellants. He had quoted the written submissions by the appellants in which the appellants had stated “to remove the defects the detergent cakes are first broken into pieces and some raw-material added into it and the further process to form cake again is the same as for cakes manufactured afresh”. As regards wrappers the Assistant Collector had found that detergent cakes and powder were being supplied in cartons and it was not possible to believe that all cakes/powder contained in a particular container may be returned back for changing of the wrappers. If some of the cake/powder bags out of a particular container is returned back for changing of wrapper, it would not be possible to verify the duty paying character. The Assistant Collector had also observed that the appellants could not produce any evidence regarding the quantity of goods received back for changing of wrappers. Accordingly the benefit of Rule 173H was not allowed. JDR also drew attention to the observations of the Collector (Appeals) in which he had observed that for availing of the benefit of Rule 173H, the process of remaking should be such that it falls short of manufacture. He had observed that the argument that the material that was received and the material which was sent out after repair barring detergent cakes did not amount to manufacture was not correct. He had observed that what was received for repair/reprocessing was damaged soap which partook the character of mere scrap. They had become useless as soaps/detergent cakes. Had it not been so they would not have been rejected at all for remaking. The Collector (Appeals) had observed that the defects in such rejected /damaged soap or detergent cakes could not be rectified unless they were broken and remade which amounted to re-manufacture.
7. I have considered the submissions of both sides and have gone through the records.
8. I find that in Paragraph 12.1 of the Memorandum of Appeal appellants have explained the details of the process engaged in by them. They have explained that where soap cakes are damaged the same are broken into smaller pieces to facilitate feeding into the machines and for making good the weight of the soap that was lost in transit some quantities of raw-material are added along with the requisite quantity of water. Then the soap cakes are wrapped and put into card boxes. Since the substances for making soap in the shape of cakes as made from broken and damaged pieces of soap, according to the appellants, the process would qualify for being covered under Rule 173H. They have also referred to case law on the meaning of ‘manufacture’. Decided cases have settled the point that manufacture employs a change and every change of article is the result of some treatment, labour or manipulation. The essential test is that there should be a transformation by the process and a new and different article must emerge having a distinct name, character or use. Manufacture does not mean merely to produce some change in the substance. Every processing cannot also, therefore, be equated with manufacture and mere change in the physical form, shape or substance of a commodity should not by itself lead to the conclusion that a new article has been manufactured. They have also referred to the Tribunal decision reported in 1990 (49) E.L.T. 544 (Tribunal) to contend that reprocessing of returned goods cannot be equated with manufacture.
9. Whether in a particular instance a particular process would amount to manufacture is a question of fact. As settled by the decisions of the Apex Court and other for a every process will not produce manufactured goods for purposes of the Central Excise Law. Transformation of the goods from one stage to another resulting in the emergence of articles with distinct name and character and use is essential in considering whether a process is manufacture. It is the admitted fact in the present case that the damaged soap cakes had lost their shape and for making it again marketable as soap cakes, the appellants have undertaken certain activities which they call mere reprocessing. By their own admission the soap cakes which have lost shape during transit had to be broken into smaller pieces for facilitating feeding into the machine and for making good the weight of the soap a certain quantity of raw-material along with water had to be added. Whether it amounts to manufacture of a new item or it is something less to qualify for the benefit of Rule 173H is the point at issue. Though the raw-material used in remaking the damaged detergent cakes may be the same as in the case of the original soap manufacture, there is a certain addition to compensate for the loss incurred in transit such as addition of certain raw-material and a certain quantity of water apart from breaking the damaged soap cakes into smaller pieces for facilitating feeding into the machines. Though admittedly these are processes which are similar to those applicable to manufacture of the original soap cakes, in the facts and circumstances of the case, I am of the view that the process engaged in by the appellants in re-processing of detergent cakes cannot be covered by Rule 173H.
10. As regards replacing of the wrapping of the detergent powder the facts are different. Nothing has been shown on record to show that any fresh process had been engaged in by the appellants apart from replacing torn/damaged wrappers. This will certainly be covered by Rule 173H.
11. Since neither the order-in-original nor the order-in-appeal has dealt with the two aspects separately, I feel that it is a fit case of remanding the matter for reconsideration by the Assistant Collector insofar as the claim for admissibility of the benefit under Rule 173H is concerned in the case of replacement of wrapping of powder. The Assistant Collector shall, therefore, examine the question of allowing the benefit of Rule 173H in the case of wrapping paper used for detergent powder. The matter may be decided keeping the aforesaid observations in view and after giving an opportunity to the appellants of being heard and after complying with the necessary procedural requirements.
12. In the result, the appeal is partly allowed and is remanded in terms set out above.
