Manufacture requires a distinct product with new name, character and use; simple blending did not justify duty demand.

Mixing Unsymmetrical Di-Methyl Hydrazine with Hydrazine Hydrate did not, on the facts described, establish manufacture of a new product for captive consumption duty purposes. The stated use remained rocket propellant use, and mere re-labelling as UH-25 was insufficient without chemical or industry-based evidence showing a distinct name, character and use. In the absence of proof that the process brought into existence a different product, exemption could not be denied on the basis of manufacture, and the duty demand and penalty were treated as unsustainable in the assessee's favour.

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Issues: Whether mixing Unsymmetrical Di-Methyl Hydrazine with Hydrazine Hydrate in the stated proportion resulted in manufacture of a new product so as to deny exemption and sustain duty demand on captively consumed UDMH.

Analysis: The product emerging from mixing was found to be used for the same rocket propellant purpose as the original material. Mere renaming as UH-25 was not enough. There was no chemical evidence or industry-based material to show a change in character, and the department did not establish that the process brought into existence a product with a distinct character and use. In the absence of proof of emergence of a new product, the process could not be treated as manufacture for the purpose of captive consumption duty.

Conclusion: The process did not amount to manufacture and no new product emerged; the duty demand and penalty were unsustainable, and the appeals succeeded in favour of the assessee.

Ratio Decidendi: A process amounts to manufacture only when it results in a new product with a distinct name, character and use, and a mere blend of inputs without proof of such transformation does not justify denial of exemption on captive consumption.

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