Manufacture by grinding mineral into marketable powder sustained, with exemption denied and penalty upheld under central excise rules.

Grinding soap stone into powder of a specified mesh was treated as manufacture because the process produced a commercially marketable article with a distinct name, character and use. On that basis, excise duty applicability was upheld. The claimed exemptions were rejected because the product did not fit the talc variety covered by the earlier notifications, and the small-scale exemption under Notification No. 176/77-CE failed as total clearances from both units exceeded the turnover limit. Penalty under Rule 173Q was sustained since goods were cleared without a licence and without payment of duty. A dissenting view held that grinding did not create a new excisable product, but the majority view prevailed.

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Issues: (i) Whether grinding soap stone into powder of a specified mesh amounts to manufacture attracting excise duty under Section 2(f) of the Central Excises and Salt Act, 1944. (ii) Whether the goods were entitled to exemption under the cited notifications, including the small-scale exemption based on the turnover limit under Notification No. 176/77-CE dated 18-6-1977. (iii) Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 was justified.

Issue (i): Whether grinding soap stone into powder of a specified mesh amounts to manufacture attracting excise duty under Section 2(f) of the Central Excises and Salt Act, 1944.

Analysis: The product emerged after treatment, labour and manipulation by converting mined soap stone into a powder sold in the market as soap stone powder for use as a filler. The decisive test applied was whether a new and distinct marketable article with a different name, character or use came into existence. On that test, the process was held to be more than a mere process and to amount to manufacture.

Conclusion: The process amounted to manufacture and the classification of the product as excisable was upheld in favour of Revenue.

Issue (ii): Whether the goods were entitled to exemption under the cited notifications, including the small-scale exemption based on the turnover limit under Notification No. 176/77-CE dated 18-6-1977.

Analysis: The claimed exemptions under the earlier notifications were rejected because the product, on the appellants' own case, was not the talc variety contemplated for the relevant tariff treatment. For Notification No. 176/77-CE, the total clearances from both units were taken into account, not merely job charges, and the turnover exceeded the prescribed limit. Notification No. 119/75 dated 30-4-1975 did not alter that position.

Conclusion: The exemption claims failed and the benefit of Notification No. 176/77-CE was not available in favour of the assessee.

Issue (iii): Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 was justified.

Analysis: The appellants cleared goods without obtaining an excise licence for one unit and without payment of duty. That conduct was treated as a violation of the Central Excise Rules warranting penal action. The reduced penalty was found not to call for interference.

Conclusion: The penalty was upheld against the assessee.

Concurring / Majority Conclusion: The appeal was rejected because the majority held that the process was manufacture, no exemption was available, and the penalty was sustainable.

Dissenting Opinion: H.R. Syiem, Member (T), held that grinding the rock into powder did not create a new excisable product under Item 68 because the powder remained of the same nature and composition and Item 68 is not a descriptive tariff entry. However, the dissent did not alter the result because the appeal failed in view of the majority.

Final Conclusion: The majority sustained the duty demand and penalty, leaving the assessee without relief.

Ratio Decidendi: Grinding a mineral into a commercially known powder of specified mesh constitutes manufacture when it produces a marketable article with a distinct name, character or use, and exemption must be denied where the statutory turnover limit is exceeded on total clearances.

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