Prospective deeming amendment under Chapter 39 and manufacture test for polyvinyl alcohol solution were placed before a Larger Bench.

A majority view in CEGAT, New Delhi held that dissolving polyvinyl alcohol powder in water did not, by itself, create a new excisable commodity with a different name, character or use, and that the amended Chapter Note 6 to Chapter 39 introduced a new deeming fiction rather than a merely clarificatory change. On that basis, the amendment was treated as prospective and the departmental contention on manufacture was not accepted. The reference issue was carried to the President for placement before a Larger Bench, while the dissent considered the point already settled by earlier Tribunal authority and would have rejected the appeal without further reference.

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Issues: Whether the amendment to Chapter Note 6 of Chapter 39 was clarificatory or prospective in operation, whether dissolution of polyvinyl alcohol powder in water amounted to manufacture of a new excisable commodity, and whether the matter required reference to a Larger Bench.

Analysis: The majority view held that conversion of polyvinyl alcohol powder into solution did not, by itself, bring into existence a new product with a different name, character, or use, and that the deeming fiction introduced by the amended Chapter Note 6 could not be treated as merely clarificatory. On that view, the amendment was considered prospective and the departmental stand on manufacture was not accepted. The dissenting view held that the issue had already been concluded by earlier Tribunal authority and that the assessee's appeal ought to have been rejected without referring the matter further.

Conclusion: The majority directed reference of the disputed questions to the President for placement before a Larger Bench, while the dissent would have upheld the impugned order and rejected the appeal.

Final Conclusion: The appeal was not finally decided on the substantive excise dispute and the controversy was carried forward for consideration by a Larger Bench.

Ratio Decidendi: A newly introduced deeming provision is not to be treated as clarificatory unless the earlier law already contained the same legal fiction in substance; if the change creates a new legal basis of liability, it operates prospectively.

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