2008 (9) TMI 386 - HC - Central Excise

Dispute over dilution process under Central Excises Act clarified by court

The case involved a dispute over whether diluting Alletherin to 3.6% purity with other agents constituted 'manufacture' under the Central Excises and Salt ... Manufacture - Processing versus manufacture - Definition of manufacture in Section 2(f) - Chapter notes of the Central Excise Tariff Act as determinative of manufacture - Binding effect of tribunal decisions vis-a -vis departmental circularsManufacture - Processing versus manufacture - Definition of manufacture in Section 2(f) - Dilution of concentrated alletherin by addition of inert carrier, masking and stabilizing agents to produce a liquid mosquito destroyer is manufacture under Section 2(f). - HELD THAT: - The Court applied the settled principle that mere processing which does not result in the formation of a new substance known to the market does not amount to 'manufacture' for excise purposes. The Supreme Court's reasoning in Union of India v. Delhi Cloth and General Mills Co. Ltd. was followed to the effect that the definition in Section 2(f) was intended to include processes incidental to manufacture but not to equate every processing with manufacture. The Tribunal's earlier decision in Markfed's case - accepted by the excise authorities and left unchallenged - held that dilution of a concentrated insecticide did not amount to manufacture; departmental circulars or Board clarifications cannot be used to override a final tribunal decision. Applying these principles to the facts, dilution of alletherin to reduce its potency and merely repackaging it under a different brand does not create a new substance and therefore does not fall within the definition of manufacture under Section 2(f). The absence of any specific provision or chapter note in the Central Excise Tariff indicating that dilution is to be treated as manufacture reinforces that conclusion. [Paras 9, 10, 11]The question is answered against the petitioner: the dilution process described does not amount to manufacture under Section 2(f).Final Conclusion: The reference is answered against the Revenue: diluting concentrated alletherin by adding inert solvent, perfume and stabilizer to produce a liquid mosquito destroyer is not manufacture under the definition in Section 2(f), and the departmental circular cannot override the tribunal's unchallenged decision. Issues:Interpretation of the definition of 'manufacture' under the Central Excises and Salt Act in relation to dilution of Alletherin to 3.6% by weight concentration from 90% concentration.Analysis:The case involved a dispute regarding whether the dilution of Alletherin by adding various agents amounted to 'manufacture' under the Central Excises and Salt Act. The respondent was engaged in manufacturing liquid mosquitoes destroyer by diluting Alletherin to 3.6% purity with deodorized kerosene oil, perfume, and DHT. The question was whether this dilution process constituted 'manufacture' as per the Act's definition. The adjudicating authority initially held that there was no manufacturing process involved as both the concentrated and diluted Alletherin fell under the same sub-heading. The Department appealed to higher authorities, but the appeals were dismissed.The Central Board of Excise and Customs issued an order stating that dilution of a concentrated insecticide would fall within the scope of 'manufacture' under the Act. However, various High Courts, including Gujarat, Madras, and Delhi, held that the Board cannot issue circulars contrary to tribunal decisions. The courts emphasized that the Board's circulars should not render tribunal decisions irrelevant. The courts stressed that the proper course of action for the Department would be to appeal the tribunal's decision if they disagreed, rather than issuing conflicting circulars.The judgment referred to precedents like Union of India v. Delhi Cloth and General Mills Co. Ltd., where the Supreme Court clarified that mere processing does not constitute 'manufacture' unless it results in the creation of a new substance. In this case, the diluted Alletherin did not lead to the formation of a new substance; it only reduced the potency of the insecticide. The court concluded that without specific provisions in the Act or chapter notes regarding dilution processes, the mere act of diluting Alletherin did not amount to 'manufacture' as defined in the law. Therefore, the petition was dismissed, and the question was answered against the petitioner.