Mere dilution and repacking do not amount to manufacture when no new commercial commodity emerges under excise law.

Mere dilution and repacking of duty-paid ultra marine blue with China Clay, together with acid dyes used to preserve shade, did not amount to manufacture because no new and distinct commercial commodity emerged and the product retained its identity. For liquid blue, dilution of already formulated or standardised acid dye with water likewise did not satisfy Chapter Note 6 to Chapter 32, because that note applies only to conversion of unformulated or unstandardised synthetic organic dyes into formulated or standardised forms. The process therefore fell outside the statutory concept of manufacture.

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Issues: Whether dilution of purchased ultra marine blue with China Clay and acid dyes and repacking it in smaller consumer packs amounted to manufacture under the central excise law, and whether the same activity in relation to liquid blue amounted to manufacture.

Analysis: The product was bought after duty payment and only diluted by adding China Clay, while acid dyes were used to preserve the shade and the goods were repacked under different brand names. The Tribunal applied the settled principle that mere mixing or dilution does not amount to manufacture unless a new and distinct commercially known product emerges with a change in name, character or use. It held that the process undertaken did not create a new commodity and that the identity of ultra marine blue remained the same after dilution. As regards liquid blue, the Tribunal found that standardised and formulated acid dye was merely diluted with water, and Chapter Note 6 to Chapter 32 applied only to conversion of unformulated or unstandardised synthetic organic dyes into formulated or standardised forms. Since the inputs were already formulated, the note did not apply.

Conclusion: The activity did not amount to manufacture, and the assessee was entitled to succeed.

Ratio Decidendi: Mere mixing or dilution of a duty-paid product, without emergence of a new and distinct commercial commodity with a different name, character or use, does not constitute manufacture; a note deeming manufacture applies only where the statutory conditions for conversion of unformulated or unstandardised material are satisfied.

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