Dilution and industrial packing of imported rust preventive coating do not amount to deemed manufacture under Chapter 38.

Diluting imported rust preventive coating with ethanol and mineral spirit, then packing it in drums or cans for industrial buyers, did not amount to deemed manufacture under Chapter Note 9 of Chapter 38. The product retained its essential functional character, the goods were supplied in both imported and diluted form depending on customer requirement, and the packing was industrial or bulk packing rather than retail packing. Mere addition of solvents was insufficient to constitute a process rendering the product marketable as contemplated by the note. The later substitution of "or" for "and" in the chapter note did not change the position for the period in dispute, so the excise duty demand could not be sustained.

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Issues: Whether diluting imported Axxanol 33C with ethanol and mineral spirit and packing it in drums/cans for industrial consumers amounts to manufacture under Chapter Note 9 of Chapter 38 of the Central Excise Tariff Act, 1985 and attracts central excise duty.

Analysis: Chapter Note 9 deems manufacture only for labeling or relabeling of containers, repacking from bulk packs to retail packs, or any other treatment rendering the product marketable to the consumer. The imported product and the diluted product retained the same functional character as a rust preventive coating, and the record showed that the goods were sometimes sold in the imported form and sometimes in diluted concentrations depending on customer requirement. The packing adopted was only industrial packing or bulk packing, not retail packing. The addition of ethanol and mineral spirit by itself did not bring the process within deemed manufacture under Chapter Note 9. The later change from "and" to "or" in the chapter note did not alter this conclusion for the period in dispute.

Conclusion: The process did not amount to manufacture under Chapter Note 9, and the duty demand could not be sustained.

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