2004 (1) TMI 423 - AT - Central Excise

Conversion of technical to formulation grade pesticides not considered manufacture under Central Excise Act. Duty demands set aside.

SUDARSHAN CHEMICAL INDUSTRIES LTD. Versus COMMR. OF C. EX., MUMBAI

The majority order in the case held that the conversion of technical grade pesticides to formulation grade does not amount to manufacture under the ... Manufacture Issues Involved:1. Whether the conversion of technical grade pesticides and insecticides to formulation grade amounts to manufacture.2. Validity and impact of the CBE&C Circular under Section 37B of the Central Excise Act.3. Applicability of the Tribunal's decision in CCE v. Markfed Agro Chemicals.4. Whether the process results in a new product with distinct name, character, and use.Detailed Analysis:1. Whether the conversion of technical grade pesticides and insecticides to formulation grade amounts to manufacture:The core issue in these appeals is whether converting technical grade pesticides (concentrated at 70% or above) to formulation grade pesticides (1% concentration) by adding diluents and other agents constitutes manufacture. The authorities below concluded that this process results in new distinct products with different properties, confirming duty demands totaling Rs. 2,14,87,847/- for various periods. The assessees argued that this process does not amount to manufacture, referencing the Tribunal's decision in CCE v. Markfed Agro Chemicals, where it was held that such processing only dilutes the chemicals without creating a new product with a distinctive name, character, and use.2. Validity and impact of the CBE&C Circular under Section 37B of the Central Excise Act:The CBE&C issued a Circular on 27-7-1995 stating that the addition of chemicals and other ingredients to pesticidal chemicals in highly concentrated form amounts to manufacture. This Circular was challenged and quashed by the Gujarat and Delhi High Courts, which held that Section 37B does not authorize the Board to issue directions contrary to the Tribunal's decision. The Tribunal's decision in Markfed Agro Chemicals, which held that such processes do not constitute manufacture, remained unchallenged by the Revenue, thus holding the field.3. Applicability of the Tribunal's decision in CCE v. Markfed Agro Chemicals:The Tribunal's decision in Markfed Agro Chemicals (1993) held that the dilution of concentrated pesticides does not result in a new product with a distinctive name, character, and use. This decision was followed in subsequent cases, including Kilpest India Ltd., Winfield Chemical India, and Kayes Agro Industries. The Revenue appealed against these decisions to the Apex Court, with some appeals admitted and one dismissed. The Tribunal in the present case found that the processes carried out by the appellants were the same as those in Markfed Agro Chemicals, and thus, the same legal principle should apply.4. Whether the process results in a new product with distinct name, character, and use:The Assistant Commissioner argued that the process modified the surface active properties of the pesticides, creating new products with different names and properties. However, this finding was not supported by material evidence such as test reports. The Tribunal noted that in the Markfed Agro Chemicals case, the same issue was considered, and it was held that dilution of concentration did not amount to the manufacture of a new product. The Tribunal emphasized that for a process to constitute manufacture, a new product with a distinctive name, character, and use must emerge, which was not the case here.Separate Judgments Delivered:- Member (J): Held that the activities carried out by the appellants do not amount to manufacture, set aside the duty demands, and allowed the appeals of the assessee.- Member (T): Disagreed with the Tribunal's decision in Markfed Agro Chemicals, arguing that the conversion process results in a new commercial product with distinct use and properties, thus amounting to manufacture. Rejected the appeals of the assessees and allowed the Revenue's appeal.- Third Member (T): Agreed with Member (J), holding that no new identifiable entity emerged from the process, and thus, the activities did not amount to manufacture.Majority Order:The appeals filed by the assessees are allowed, and the appeal filed by the Revenue is dismissed, following the view that the activities do not constitute manufacture under the Central Excise Act.