2011 (8) TMI 93 - SC - Central Excise

Helium Processing Held 'Manufacture' Under Chapter Note 10, Chapter 28, Making Upgraded Gas Grades Excisable and Dutiable

SC upheld the excise demand, holding that the process undertaken by the appellant on purchased Helium gas constituted 'manufacture' within Chapter Note 10 ... Manufacture - phrase 'marketable to the consumer' - relabelling - treatment to render the product marketable to the consumer - whether the treatment given or the process undertaken by the appellant to Helium gas purchased by it from the open market would amount to manufacture, rendering the goods liable to duty under Chapter Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985 - purchased Helium gas under a generic description but after the tests and analysis, it was sold to different customers based on their specific requirements at profit margin ranging from 40% to 60% in different cylinders - HELD THAT:- It is pertinent to note that when the appellant was asked about the process which was being carried out on Helium gas before selling it to its customers, the representative of the appellant had refused to give any detail with regard to the process because, according to him, that process was a trade secret and he would not like to reveal the same. The gas cylinders were not sold as such but they were sold only after certain tests or processes as specified by the customers of the appellant. It is also clear that only after the analysis and tests, it could be ascertained as to whom the gas was to be supplied and at what rate. The various tests resulted into categorization of the gas into different grades namely, Helium label 4, high purity Helium and Helium of technical grade. Helium label 4 was sold at higher rate as it matched superior standards. Helium gas was having different marketability, which it did not possess earlier and hence the gas sold by the appellant was a distinct commercial commodity in the trade, rendering it liable to duty under Chapter Note 10 of Chapter 28 of the Act. If the product/commodity, after some process is undertaken or treatment is given, assumes a distinct marketability, different than its original marketability, then it can be said that such process undertaken or treatment given to confer such distinct marketability would amount to 'manufacture' in terms of Chapter note 10 to Chapter 28 of the Act. In our opinion, the Tribunal has rightly observed that if no treatment was given to the gas purchased by the appellant, customers of the appellant would not have been purchasing Helium from the appellant at a price 40% to 60% above the price at which the appellant was purchasing. It is also pertinent to elucidate on the phrase 'marketable to the consumer'. The word 'consumer' in this clause refers to the person who purchases the product for his consumption, as distinct from a purchaser who trades in it. The marketability of the product to 'the purchaser trading in it' is distinguishable from the marketability of the product to 'the purchaser purchasing the same for final consumption' as in the latter case, the person purchases the product for his own consumption and in that case, he expects the product to be suitable for his own purpose and the consumer might purchase a product having marketability, which it did not possess earlier. Therefore, the phrase 'marketable to the consumer' would naturally mean the marketability of the product to 'the person who purchases the product for his own consumption'. Hence, the argument of the appellant that as the product was already marketable, the provisions of Chapter Note 10 of Chapter 28 of the Act would not be attracted, will have to be rejected. We agree with the Tribunal in holding that the appellant is liable to pay excise duty for the reason that it has manufactured Helium within the meaning of the term Manufacture' as explained in terms of Chapter Note 10 of Chapter 28 of the Act. We are in agreement with the view expressed by the Tribunal that relabelling would not mean mere fixing of another label. When the appellant was selling different cylinders with different marking or different certificates to its different customers, we can say that the appellant was virtually giving different marks or different labels to different cylinders having different quality and quantity of gas. No duty was ever paid by the appellant on the Helium sold by it after giving some treatment so as to make it a different commercial product. We, therefore, do not see any reason to interfere with the finding with regard to limitation also. Issues:1. Whether the treatment given to Helium gas by the appellant amounts to manufacture under Chapter Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985.2. Whether the process undertaken by the appellant renders the goods liable to duty.Analysis:Issue 1:The appeal challenges the Tribunal's decision that the treatment given by the appellant to Helium gas constitutes 'manufacture' under Chapter Note 10 of Chapter 28 of the Act. The appellant argued that no new product emerged from the treatment, and the gas remained unchanged. However, the Tribunal found that the testing and treatment rendered the gas marketable in distinct grades, justifying duty imposition. The appellant's reliance on previous cases was countered by the respondent, supporting the Tribunal's conclusion.Issue 2:The appellant contended that the gas was already marketable upon purchase, and testing did not enhance its marketability. However, the Tribunal highlighted that the gas was sold in different grades post-testing, indicating a change in marketability. The appellant's refusal to disclose the treatment process raised suspicions of willful suppression. The Tribunal's decision on limitation and duty imposition was upheld, emphasizing the appellant's manufacturing activity under Chapter Note 10.The judgment concludes that the Tribunal's decision aligns with Chapter Note 10, as the treatment given by the appellant transformed the Helium gas into distinct commercial products. The relabelling argument was dismissed, emphasizing the creation of new commercial commodities through treatment. The lack of disclosure and non-payment of duty further supported the Tribunal's findings. Ultimately, the appeal was dismissed, affirming the duty liability on the appellant for engaging in manufacturing activities as per Chapter Note 10.